JUST A REMINDER

Make a note of the amount of the third stimulus payment you received (the maximum $1,400 per taxpayer and dependent), or if you received no payment, and keep any IRS notice you get that identifies the payment.  Do the same for any subsequent payments that may be enacted.  Give this information to your tax preparer with your 2021 tax “stuff” next year.

These payments are NOT taxable income.  But they will need to be “reconciled” when preparing your 2021 tax return.  If you didn’t get the full amount to which you were entitled you can claim the shortage as a refundable credit on the 2021 return.

TTFN

UNEMPLOYMENT BENEFITS

The American Rescue Plan, signed into law last week, exempts from federal taxable income up to $10,200 in unemployment benefits received in 2020 if your “household” modified AGI is less than $150,000. 

This exemption applies to all unemployment received in 2020, and not just the special federal $600 per week extended benefit passed as part of the stimulus package.  It includes “regular” unemployment benefits paid under a traditional state program.

The $10,200 exemption is per spouse on a joint return.  So, if both spouses received unemployment in 2020, they can each exclude up to $10,200.  The $10,200 is “per spouse” – as IRS guidance explains, if one spouse received $20,000 in unemployment and the other received $5,000 the total amount you can exclude is $15,200 ($10,200 + $5,000).

Your “modified” AGI for claiming the exemption is your AGI before subtracting the exclusion of unemployment benefits.  The $150,000 income threshold applies to Single filers, Head of Household filers, and joint filers.  If you are single or a Head of Household you can exclude up to $10,200 if your AGI is $149,999 or less.  If you are married filing a joint return you can exclude up to $10,200 each if your AGI does not exceed $149,999.  The exclusion does not “phase-out” at $150,000.  If your AGI is $149,999 or less you can exclude $10,200 per taxpayer.  If your AGI is $150,000 or more you cannot exclude anything – all of your unemployment is fully taxable.  So, $1.00 in actual income can increase your net taxable income by at least $10,200 or $20,400!  I do not know yet how this $150,000 threshold applies to separate returns filed by a married couple.

The gross amount of unemployment received, as reported on Form 1099-G, is reported on Line 7 of Schedule 1.  The amount of the exclusion is reported as a negative number on Line 8.  Write “UCE” and show the amount of the exclusion claimed in parentheses on the dotted line at Line 8. 

A single filer who received $16,000 in total unemployment would enter $16,000 on Line 7.  If the taxpayer had no other “other income” to report on Line 8 he or she would enter ($10,200) on Line 8.  If these were the only entries on Schedule 1 Part 1 Line 9, carried over to the Form 1040 or 1040-SR, would be $5.800. 

Go here for the official IRS explanation of how to claim the exemption.

TTFN

A MESSAGE TO TAXPAYERS ON BEHALF OF YOUR TAX PREPARER

 

Dear Taxpayer –

When sending/giving your tax preparer your 2020 tax “stuff” be sure to include the amount of any Economic Impact Payments you received in May of 2020 and January of 2021 – the up to $1,200 per person and up to $600 per person payments.  Or tell them that you did not receive one or both of the payments.

You do not have to give them the Notice 1444-A or 1444-B you received from the IRS identifying your payment – but do so if you have it.  I actually just received my 1444-B notice for the check I got this January in today’s mail.

If you want to verify what you did and did not receive you can do so at the IRS website – go here.  Perhaps more better – go here to create an individual IRS account and request a transcript.

Only about half of the clients whose “stuff” I have received so far this season included information about these payments – despite the fact that I specifically requested this information in my annual January mailing to my 1040 clients.

These payments are NOT taxable income – but if you did not get the full amount of either check to which you were entitled you can claim a refundable credit for the shortage when filing your 2020 tax return.  Several of my clients have told me they did not receive either the first or second check.

The reason for a potential shortage is the fact that most of the payments sent out in 2020 were based on 2018 tax return information and the payments sent out this past January were based on 2019 tax return information – but the actual amount you are entitled to is based on your 2020 income.

FYI – if you got more than you were entitled to you do not have to pay the excess back when filing your 2020 return.

One more FYI while I have your attention – a “Where the Fakawi” FYI.  This tax season I am relying 100% on the Postal Service for delivering work and payments to me.  Moron Trump’s attempts to destroy the Post Office to sabotage the timely delivery of the legitimate mail-in ballots from those voting for Democratic candidates in the 2020 election have had lasting effects.  It is taking much longer for “regular” mail to get to me here in “the country” – and it is even taking longer for Priority Mail packages. 

I mailed a check payment for a credit card in January 15^th – and it was just received and applied by the credit card company yesterday!  It literally took a month to deliver.

Just one more reason to say “Fuck You, Donald Trump” and be glad he is gone.

TTFAW

THE SECOND ECONOMIC STIMULUS PACKAGE

 

“The Consolidated Appropriations Act of 2021” was finally signed into law by Trump on Sunday night, December 27.  In addition to the $600 per taxpayer and dependent child Economic Impact Payment (discussed here), the Act includes the following items that affect Form 1040 (and 1040-SR) filers -

FOR 2020 RETURNS

Taxpayers can use their 2019 income to determine eligibility for and calculate the 2020 Earned Income Credit and Additional Child Tax Credit if it results in a bigger credit than actual 2020 income.

FOR 2021 AND BEYOND RETURNS

* Business-related “food or beverages provided by a restaurant” are 100% deductible for 2021 and 2022 (remember - employee business expenses, including employee-paid business meals, are no longer deductible on Schedule A).   

* The "above-the-line" deduction of up to $300 per taxpayer for qualifying charitable contributions for taxpayers who do not itemize on Schedule A, a per return deduction for 2020, is per taxpayer for 2021.  The maximum deduction for a married couple filing a joint 2021 return is $600.

* The 7½% of AGI exclusion for medical expenses on Schedule A is made permanent

* The MAGI-based phase-out amounts for the Lifetime Learning Credit are permanently increased to equal the amounts for the American Opportunity Credit.

* The lifetime $500 credit for 10% of qualified residential energy purchases is extended for 2021.

The Act also included new and extended business and payroll tax relief and other non-1040 items.

TTFN

THIS JUST IN

 

Congress has passed COVID relief legislation.  It is expected Trump will sign the bill into law today.

 

The package includes a second “Economic Impact Payment” (EIP) of $600 per person. 

 

An email alert sent to members of the National Association of Tax Professionals by the association explains -

 

“The full credit amount is $600 per individual, $1,200 per couple and $600 for {dependent} children. It is available for individuals with AGI at or below $75,000 ($112,500 for heads of household), and couples with AGI at or below $150,000. If you have children, you will receive an additional $600 per child.

 

For those above this income level, your tax rebate amount will be reduced by $5 for each $100 your AGI exceeds the above thresholds.”

 

It is anticipated that the IRS will begin issuing the payments at the end of December through the first two weeks of January, based on data it already has in its system from the first round of checks.  If the Service has your direct deposit information, your payment will be directly deposited to your bank account.  If not, your payment will be mailed to you.

 

As with the first payment, this one is also not considered taxable income.  And, also like the first payment, it will be reconciled on your 2020 tax return.  If you did not receive the full amount to which you entitled you can claim it as a refundable credit on the return.  Excess payments not due to fraud do not have to be repaid.

 

TTFN

FYI

 

Here is a reminder of some things you need to be aware of when planning for and preparing your 2020 income tax returns.

* The IRS was closed for 3 months beginning at the end of March.  During this time mail was not opened and returns were not processed.  As a result, the issuance of requested refunds was seriously delayed.  Due to the excessive delay the refund checks finally received by taxpayers included a payment of interest calculated from April 15, 2020 till the date of issuance. 

This interest is taxable income for 2020.  You will receive a 2020 Form 1099-INT from the Department of the Treasury (IRS) in January of 2021, and this income must be reported on your 2020 Form 1040 (or 1040-SR) and state income tax return.

* Unemployment benefits received in 2020 due to the pandemic are fully taxable on your 2020 federal income tax return, and may also be taxable on your 2020 state income tax return (not on the New Jersey state return). 

As most individuals collecting unemployment in 2020 needed every penny of the benefit. I expect they did not request federal income tax withholding on their benefits, and may end up owing federal income tax on their 2020 Form 1040 or 1040-SR.

Many states, New Jersey included, no longer mail out a paper Form 1099-G to report unemployment benefits paid and federal income tax withheld.  If you received unemployment in 2020 you may need to go to your state’s unemployment benefit website – the site you used to apply for unemployment – and download a copy of your 2020 Form 1099-G to give to your tax professional.

* The Economic Impact Payment – a maximum of $1,200 ($2,400 if married filing jointly) plus $500 for each qualifying child you had in 2020 – is not taxable income.  You do not have to report the amount you received as income on your 2020 income tax return. 

But, like the Advance Premium Credit, this payment must be reconciled on your 2020 Form 1040 or 1040-SR.  If you got more than you should have you do not have to pay back the excess.  But if you did not get a payment or you got less than you should have you can claim a refundable Recovery Rebate Credit on your 2020 federal income tax return.  So, you will need the amount you received when preparing your 2020 return

Any questions?

TTFN

UNDERSTANDING THE ECONOMIC STIMULUS PAYMENT

Here is a review of what we know about the recent economic stimulus payment.

All US residents who are not a dependent of another taxpayer and have a work-eligible Social Security number are entitled to a stimulus payment of up to $1,200, or $2,400 for married couples, with an additional $500 for each dependent child under age 17.

The amount of the check is based on your 2019 Adjusted Gross Income (AGI) – or your 2018 AGI if the 2019 return has not been filed or processed.  The payment phases out once your AGI exceeds $75,000 if single, $150,000 if married or $112,500 if you are considered a Head of Household. You will lose $5 of your payment for every $100 your AGI exceeds those thresholds.  Single individuals with an AGI of $99,000, heads of household with an AGI of more than $136,500 or more and married couples with an AGI of $198,000 or more, who have no dependent children, will not receive a payment. 

The phase-out threshold increases by $10,000 for each qualifying dependent child under age 17.  For example, the phaseout threshold for a Single taxpayer with minor dependents are:

One child: $109,000

Two children: $119,000

Three children: $129,000

KIPLINGER.COM has created a stimulus check calculator tool – go here.

In many cases the payment was calculated based on your 2018 AGI, because your 2019 Form 1040 or 1040-SR, if filed, had not been processed when the amount of the payment was calculated.  The IRS offices were closed from the end of March until June and your 2019 return may not have been processed.  So, your payment may be less than the actual amount to which you are entitled.  However, according to the IRS website, as of this writing, “The IRS is not able to correct or issue additional payments at this time and will provide further details on IRS.gov on the action people may need to take in the future.”

This payment is administered via new Internal Revenue Code Section 6428.  It is NOT taxable income.  The payment will be treated as an “advance credit”, like the Obamacare advance premium credit, and must be reconciled based on 2019 information when preparing your 2020 tax return next year.  If you are entitled to more than you received you can claim the additional amount as a refundable credit on your 2020 return.  If you received more than you should have you do not have to pay back the excess. 

Because for many the 2020 economic stimulus payment was calculated based on 2018 tax return information, those who were claimed as a dependent on their parents’ 2018 return but not on the 2019 return did not get a payment, even though they were entitled to receive one.  When these taxpayers file their 2020 tax return, they can claim the full amount of the $1,200 payment not received, within the AGI limitations, as a refundable credit.     

The IRS will issue a Notice 1444 (Your Economic Impact Payment) shortly after your payment has been issued.  The IRS recommends you keep this notice in your files.  When you file your 2020 tax return next year you will need to report the amount you received – not as taxable income but when reconciling the allowable credit. 

The IRS provides detailed answers to questions about the stimulus payment here.

Please understand that there is absolutely nothing your tax preparer can do to expedite the processing of your 2020 stimulus payment or the issuance of your stimulus payment check.  Do not ask your tax preparer why you have not received your stimulus payment yet, or when you will get it.

TTFN

ANSWERS

{NOTE - UPDATED MAY 24th}

I have received several emails from clients asking about their 2019 refunds and 2020 stimulus payments, and I expect many taxpayers have similar questions.  So here are the answers.

 (1) The offices of the Internal Revenue Service were closed at the end of March due to the pandemic.  Mail sent to the IRS was not opened and manual returns were not processed.  As a result, refunds requested on manual returns were not issued.  The Service reopened its offices on April 27 and called back some employees to handle what it called “mission-critical functions” such as opening the piles of mail and processing manual returns.  However, subsequent virus-related issues indicate that the delay in processing returns, current and amended, and issuing refunds will continue. 

(2) In many cases when inquiring about the status of your 2020 stimulus payment at the IRS website you will need to enter information from your 2018 tax return.  Unless you filed your 2019 return in February or early March the information from your 2019 return is not in the IRS system.

(3) Just because the IRS cashed your check for payment of a balance due sent with your 2019 manually filed return does not mean your 2019 return has been processed.  Manual returns with payments are sent to bank lock-boxes.  The check is promptly deposited and the return is sent to the IRS for processing. 

(4) If you are receiving Social Security benefits that are directly deposited this does not mean your 2020 stimulus payment will automatically be directly deposited to your bank account.  This only applies if you are a “non-filer” – for example your only source of income is Social Security and you do not have to file a federal tax return.  The IRS will only directly deposit these payments for those who file federal income tax returns if it has the direct deposit information for a refund requested on the 2019, or more probably 2018, return.

(5) The date of mailing, or direct deposit, of your 2020 stimulus payment is based on the Adjusted Gross Income (AGI) on your 2019, or more likely 2018, tax return.  The greater your AGI the later your payment will be issued.

(6) In many cases the economic stimulus payment you received, or will receive. is calculated based on your 2018 AGI, because your 2019 Form 1040 or 1040-SR, if filed, had not been processed when the amount of the checks was calculated.  The IRS offices were closed down from the end of March until the end of April and 2019 returns were not being processed.  So, your check may be less than the actual amount to which you are entitled.  However, according to the IRS website, as of this writing, “The IRS is not able to correct or issue additional payments at this time and will provide further details on IRS.gov on the action people may need to take in the future.”

(7) The economic stimulus payment is administered via new Internal Revenue Code Section 6428.  IT IS NOT TAXABLE INCOME.  The payment will be treated as an “advance credit”, like the Obamacare advance premium credit, and must be reconciled, based on 2019 information, when preparing your 2020 tax return next year.  If you are entitled to more than you actually received in 2020 you can claim the additional amount as a refundable credit on your 2020 Form 1040 or Form 1040-SR.  If you received more than you should have you do not have to pay back the excess.  

(8) As of this writing the deadline for filing your 2019 federal and state income tax returns, and paying any balance due, is July 15, 2020.  This has not been further extended to September, October or December.

(9) Perhaps most important – there is absolutely nothing your tax preparer can do to expedite the processing of your 2019 tax return or 2020 stimulus payment or the issuance of your 2019 refund or 2020 stimulus payment check.  Do not ask your tax preparer why you have not received your  2019 refund or your stimulus payment yet, or when you will get it.  If you want to find out about your stimulus payment go here.

Now when I receive an email question from a client, I can simply provide a link to this post.

TTFN

ADDITIONAL RELIEF IN ECONOMIC STIMULUS PACKAGE

Based on what I have read, in addition to the $1,200 per taxpayer, plus $500 per dependent child under age 17, stimulus payment the economic relief package that Trump has signed into law includes the following items of interest –

(1) There is an automatic suspension through September 30, 2020 for payments of any student loan held by the federal government – a “direct loan”.  Interest will not accrue on the loan during the suspension period.

(2) For calendar year 2020 nobody will be required to take an RMD (required minimum distribution) from any individual retirement accounts (IRA) or workplace retirement savings plans (401k).  This does not affect “traditional” pensions.  This way the plan will not be forced to sell investments at a loss resulting from the virus-inspired market drop to generate cash to distribute.

(3) You can make a premature withdrawal of up to $100,000 from an IRA or workplace retirement plan for virus-related purposes without having to pay the 10% penalty.  The federal income tax on a qualified withdrawal is spread over 3 years.  You can return all or part of the withdrawal before 3 years from the date you took the withdrawal.  You qualify for the penalty exemption and special tax treatment if you, your spouse or a dependent tested positive for the virus or you experienced negative economic consequences related to the pandemic – for example from being quarantined, furloughed, laid off, having reduced hours, or being unable to work due to a lack of child care.

(4) Taxpayers who do not itemize can deduct as an adjustment to income (deduction from gross income) up to $300 in charitable contributions on their 2020 Form 1040 (or 1040-SR).  This appears not to be limited to tax year 2020.

TTFN

A LITTLE THIS-A AND A LITTLE THAT-A – WITH THE EMPHASIS ON THE LATTA

Sorry for the lack of posting this week – I have been working away on the GD extensions, with acceptable success.

* Here is an interesting twit (tweat?) I received last week that should be RT to BO and NJ Gov Jon Corzine - “They tell us that high taxes on smokers will induce them to quit - so I guess they already know what high taxes on business will do.”

* It appears that the IRS realizes the mucking fess that BO’s Making Work Pay credit has made of the federal withholding tax tables, especially for retired taxpayers who use the tables to determine withholding from pensions.

NATP reports in its weekly email newsletter that, “The IRS released an optional procedure for adjusting withholding on pension plans in 2009. The changes to the withholding tables that the IRS made for the Making Work Pay Credit affected pension plan withholding even though pensions are not considered earned income for credit purposes. The IRS has issued Notice 1036-P, Additional Withholding for Pensions for 2009, that pension providers can use to calculate additional withholding for pension payments. A withholding adjustment calculator is available on the IRS website.”

While I do give the IRS kudos for attempting to deal with the problem, the use of these additional tables, which are used to “calculate additional withholding amounts for pension payments” is a bit confusing for the average taxpayer. This “procedure” adds another step to the “normal” process, as the withholding amount determined from the tables is “added to the amount of withholding determined from the percentage method, the wage bracket method, or other allowable method”.

* My mother went to her final audit at the end of April. The funeral home notified the Social Security Administration of her passing. In the beginning of May her regular monthly Social Security benefit check was directly deposited to my folks’ joint checking account. On May 7th BO’s $250 “ERP” (Economic Recovery Payment) for both my mother and father was directly deposited.

I just noticed at the beginning of the week that a “DOTS” miscellaneous deduction was made from the account. This withdrawal equaled the total of my mother’s Social Security benefit check and the $250 ERP. I assume that “DOTS” refers to Department of Treasury S(omething).

I am confused why the ERP was returned to Social Security. My mother was entitled to this payment as she was eligible for Social Security benefits for all of the three months before February 17, 2009 (the date of enactment of ARRA) - only one month of eligibility is required.

.

I emailed my contact at SSA who told me he would look into it, but that SSA employees “have had little training on this”. I checked the appropriate FAQ pages on both the SSA and IRS websites, but could not find a question or answer that dealt a deceased SS recipient.

I suppose it is very possible that the bank returned both checks in error. I will have to check with Wachovia next time I am out and about.

Can anyone out there provide any guidance on this matter?

TTFN

THIS JUST IN – STIMULUS CHECKS FOR SOCIAL SECURITY RECIPIENTS IN THE MAIL!

I just checked my father’s bank account online and found that BO’s $250.00 “Economic Recovery Payment” (ERP) for both my father and mother were directly deposited yesterday (5/7).

So be on the look-out for these checks – so you can run out and save the economy!

THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 – WHAT’S NEW FOR 2009 – PART II

The centerpiece of the tax provisions of BO’s “stimulus” package is his Making Work Pay Credit. Every taxpayer, except as listed below, with “earned income” (i.e. W-2 wages and net earnings from self-employment) will get a credit (dollar for dollar reduction of tax) of up to $400.00 (which becomes $800.00 for a joint return) on their 2009 and 2010 tax returns.

The credit is calculated as 6.2% of earned income.

The credit is not available for non-resident aliens, those who can be claimed as a dependent, or estates or trusts. You must have a valid Social Security number (at least on spouse on a joint return) to get the credit.

The credit is “phased-out” at the rate of 2% of the taxpayer’s Adjusted Gross Income (AGI) in excess of $75,000 for singles and $150,000 for joint filers – the same phase-out range used for GWB’s 2008 rebate checks and the second chance “recovery rebate credit” available on the 2008 tax return, although a smaller percentage (2% instead of 5%). The credit is completely phased out if AGI exceeds $95,000 or $190,000 respectively.

There is no additional credit based on “qualified” children as there was with GWB’s “stimulus” rebate. The most a family can get is $800.00 ($400.00 if a single parent).

The federal withholding tables have been revised accordingly to reflect this credit – so workers will see about $13 per week extra in their paychecks. The IRS asks that employers start using these new tables as soon as possible, but no later than April 1, 2009.

Big whoop!

It is obvious that the 2008 rebate checks were a very expensive fiasco – costing the government billions of dollars both in actual out-of-pocket expense and in uncollected outstanding taxes (as the IRS had to take employees away from collecting back taxes to man the phones to answer the multitude of questions from taxpayers), and doing nothing to “stimulate” the economy. See my guest post at taxguy “That Was the Economic Stimulus That Was”.

However, a lump-sum check of $1,200 to $2,100 or more (depending on family size) could be put to good use paying down bills or credit card debt or as an investment. Granted, as my mentor Jim Gill would say when discussing a small refund, “Better in your pocket . . . {than in the pocket of the government}”, $13.00 per week will be simply “lost in the shuffle” and not make any significant impact on anything. What will it buy – a night out for the family at McDonald’s?

At least this “stimulus” payment saves the government the cost of distributing the money - it is much more cost-efficient to have all the work done by employers. But making the pay-out through revised income tax withholding tax tables will result in many unintended consequences.

Andrea Coombes points out the major problem in her article “More Like a 'Make Work' Credit: New Making Work Pay Credit Makes a Check-Up on Your Withholding Essential” at MarketWatch -

“But withholding tables are a blunt instrument, unable to precisely assess taxes for millions of taxpayers' unique situations. And employers who use the tables don't know workers' complete situation, such as whether an employee has a second job or is married to someone who also works. That means some workers will end up with more cash than they're eligible for under the new credit”.

She also points out that, “People claimed as dependents aren't eligible for the credit, but if they work it may show up in their paychecks.”

Many taxpayers will find themselves unpleasantly surprised at tax filing time next year by an unexpected balance due to “Sam” resulting from under-withholding.

Also hit with unintended consequences are retired taxpayers who do not have earned income but receive pensions. I have seen the effect on several clients already. While some retirees request a flat % withholding on their pension distributions (i.e. 20%) there are also many who use the withholding tables, claiming “Married 0” or “Single 1” just as they would if they were working. These taxpayers are not entitled to the Making Work Pay credit – but the withholding on their pensions, often just enough to cover their tax liability, will be reduced by over $50.00 per month due to the revised tables.

A significant number of individuals, working and retired, will need to revise their W-4 or W-4P to request additional withholding in order to offset the MWPC adjustments.

Totally self-employed individuals would, in theory, adjust their quarterly estimated tax payments by $100.00 or $200.00 per quarter to take advantage of the advance payment of the credit.

The credit of 6.2% comes from an earlier, non-BO stimulus proposal known as the “payroll tax holiday”. 6.2% is the tax rate for withholding for the Social Security component of the “FICA” payroll tax. The “payroll tax holiday” idea called for suspension of Social Security withholding on the first $XXXX of wages – sufficient to equal the specific dollar amount of the proposed rebate.

This method would not affect income tax, and therefore would not require a change in the income tax withholding tables. It would avoid the problem faced by retirees, but would not avoid “double-dipping” by employees with more than one job during the year or the problem of working dependents.

Recipients of Social Security, SSI, Railroad Retirement, and Veterans Benefits will receive a one-time “Economic Recovery Payment” of $250.00 sometime before the end of May (my parents just received a notice from SSA about this payment). This is a separate check issued by SSA, RR or VA. If your benefits are directly deposited to a bank account so will this $250.00. Those who are also entitled to a MWPC due to employment or self-employment must reduce their $400.00 credit by any such “Economic Recovery Payment” – so the most an employed Social Security recipient gets is $400.00 and not $650.00.

.

As the notice my parents received points out "You do not need to take any action to get this payment".
.
The ERP is for 2009 only. There does not seem to be any income phase-out for the $250.00 payment. It is available to recipients of one of the 4 sources who were eligible for benefits for any one of the three (3) months prior to the February 17 enactment date (i.e November or December 2008 or January 2009). Eligible ERP recipients are asked to notify the appropriate agency (SSA, RR, VA) if a payment is not received by June 4, 2009.

Again big whoop – but still “better in your pocket . . .”!

The IRS has a Q+A section for the Making Work Pay Credit at its website (click here), and the SSA website has a page on the Economic Recovery Payment (clock here).

So what are you going to do with your $13.00 per week “windfall”?

TTFN

AS THE CONGRESS TURNS

The Democrat's stimulus package, with some minor changes from its original form, passed in the House by a vote of 244 to 188. There were no Republican “yes” votes and 11 Democratic “no” votes (mostly conservative Democrats). The ball is now in the Senate’s court.

TAX PROF Paul Caron reports on “Tax Differences in House, Senate Stimulus Bills”.

TAXGIRL Kelly Phillips Erb has some interesting comments on the stimulus package in her post “Modified Version of Stimulus Bill Passes House”.

AS THE CONGRESS TURNS

Good news!

The CCH daily tax headline email newsletter reports this morning that -

“The Senate Finance Committee on January 27 approved its portion of an $825 billion economic stimulus bill, the American Recovery and Reinvestment Bill of 2009, and potentially boosted the total cost to nearly $900 billion after agreeing to include a one-year patch for the {dreaded} alternative minimum tax (AMT).”

You can click here to check out a detailed press release on the provisions of the bill.
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However, according to White House Press Secretary Robert Gibbs, “Obama supports the AMT patch, but believes it should be taken up separately from the economic recovery package, since it is directed at upper-middle-income taxpayers”.

Unfortunately my “tax-season hiatus” begins on Monday and I will not be able to report on the progress of the stimulus package. I will be posting once about every 20 days so I remain on the Alltop.com tax page – so I may use these posts to bring you updates.

IT KEEPS TURNING!

This just in -

Senate Finance Committee Chairman Max Baucus (D-Mont.) has unveiled the Senate version of the tax provisions for inclusion in the American Recovery and Reinvestment Act of 2009.

They include –

· Making Work Pay Credit: an individual tax credit in the amount of 6.2 % of earned income not to exceed $500 for single returns and $1,000 for joint returns in 2009 and 2010.

· Seniors, Disabled Veterans and SSI: a one-time payment of $300 to Social Security beneficiaries and SSI recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries.

· Temporary Suspension of Taxation of Unemployment Benefits: federal income tax temporarily suspended on the first $2,400 of unemployment benefits per recipient.

· Expansion of the Earned Income Tax Credit: an increased credit for three or more children and additional marriage penalty relief for married couples.

· Expansion of the Refundable Child Tax Credit: increased eligibility for the refundable child tax credit in 2009 and 2010 by lowering the threshold to $6,000.

· American Opportunity Tax Credit: a $2,500 higher education tax credit that is available for the first four years of college

· Computers as qualified education expenses in 529 Education Plans: computers and computer technology to qualify as qualified education expenses

· Homeownership Tax Credit: modifies the $7,500 tax credit for home purchases that occur after 2008 and before July 1, 2009.

Hey – where’s the dreaded AMT fix?

I will provide more information as it becomes available.

AS THE CONGRESS TURNS

Over at THE TAX LAWYER’S BLOG Peter Pappas asks the question “House Approves Stimulus Bill, But Where is AMT Fix?”.

The answer is nowhere!

The House Ways and Means Committee has approved the tax portion of the stimulus package without the annual AMT fix.

Peter quotes USATaxNews.com quoting Senator Chuck Grassley, ranking Republican on the Senate Finance Committee, responding to this omission –

“It makes no sense to give tax cuts with one hand and take them away with another. I’ll fight to have the alternative minimum tax patch for 2009 included in the Senate version of the stimulus bill, so that millions of middle-class Americans won’t have their tax cuts taken away before they ever receive them.”

We had hoped that Congress would take care of the annual dreaded AMT fix (the AMT is dreaded – not the fix) early in the year – not as good as doing away with the damned thing altogether, but better than waiting till the last minute to pass a patch again (see an earlier “As the Congress Turns").

AS THE CONGRESS TURNS

I reported on the Democrat’s “stimulus” package, but missed the Republican version - the Economic Recovery and Middle-Class Tax Relief Act (HR 470) – which was introduced on January 13.

According to a post by Congressman Scott Garrett at THE RIDGEWOOD BLOG tax provisions contained in the Republican proposal include:

1. 5% across the board reduction to individual income tax rates
2. Repeal the Alternative Minimum Tax for individuals
3. No increase in capital gains and dividends tax rates for individuals
4. Increase the child tax credit from $1,000 to $5,000, but it is not refundable
5. Permanently repeal the 70.5 distribution requirement on IRAs
6. Increase the tax deduction for student loans from $2,500 to $3,750 and increase income limits up to $75,000 for individuals and $150,000 for families with no phase out
7. Increase the tax deduction for qualified higher education expenses from $4,000 to $6,000 and increase income limits up to $75,000 for individuals and $150,000 for families with no phase out
8. Temporarily make all withdrawals from IRAs not subject to taxation or penalties for 2009
9. Reduce the corporate income tax rate to 25%
10. Reduce the alternative capital gains rate for corporations to 15%
11. Index capital gains for inflation
12. Repeal limitations on expensing allowance (Sec. 179) of depreciable business assets
13. Make the R&D tax credit permanent
14. Extend the two-year “carryback” period for net operating losses to seven years

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My two cents -

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* A big two thumbs up to #s 2 and 3.

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* I have no problem with 1, 6, 7, 8, 10, and 13.

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* I think $5,000 is too much in #4, but I am glad to see that any increase would not be refundable.

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* I don’t think the repeal should be permanent, although I would support increasing the age re: #5.

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* I would rather see the creation of a “dividends paid deduction” re: #9.

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* I am not quite sure how #11 would work. I would strongly favor the $3,000 maximum net capital loss deduction be increased and perhaps indexed for inflation.

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* I would rather see a total overhaul of the depreciation deduction re: #12.

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* Maybe 5 years re: #14.

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What thrills me most about this proposal is – NO REFUNDABLE CREDITS!

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So what do you think?

AS THE CONGRESS TURNS

Tax-challenged House Ways and Means Chairman Charlie Rangel, recently elected “2008 Taxpayer of the Year” (by a large majority) at the ROTH AND COMPANY TAX UPDATE BLOG, has released details of the tax provisions of the American Recovery and Reinvestment Plan.

According to the press release, “This groundbreaking plan will provide critical tax, health and job-training benefits to American families, incentives for businesses to grow and create jobs and assistance for those who have lost their jobs or are economically disadvantaged”.

The tax provisions that provide “recovery” for individuals include –

* A refundable “Making Work Pay” credit of up to $500 for singles and $1,000 for joint taxpayers based on 6.2% of “earned income” (note that 6.2% is the Social Security withholding tax rate). The credit will phase-out as AGI exceeds $75,000 for singles and $150,000 for joint filers. The money is distributed via a reduction in income tax withholding or by claiming a credit on their federal income tax returns (I expect to cover self-employed individuals). This credit applies for 2009 and 2010.

* An increase in the Earned Income Credit to 45% (from 40%) of a family’s first $12,570 of earned income for families with three (3) or more children and increase the beginning point of the phase-out range for all married couples (regardless of number of children).

* Elimination the current $8,500 “floor” on the refundable portion of the Child Tax Credit for 2009 and 2010. Currently the credit is refundable to the extent of 15% of a taxpayer’s earned income in excess of $8,500. Under this bill the $8,500 would become “0”.

* A partially refundable “American Opportunity” education tax credit of up to $2,500 of the cost of qualified tuition, fees and books determined as 100% of the first $2,000 and 25% of the next $2,000 paid during the year. 40% of the credit will be refundable. The credit will phase-out as AGI exceeds $80,000 for singles and $160,000 for joint filers. The credit applies for 2009 and 2010. I expect this credit would replace the existing education tax credits and the above-the-line deduction for tuition and fees.

* Eliminate the obligation to repay the First-Time Home Buyer Credit on home purchases made after January 1, 2009. The credit would have to be recaptured if the home is sold within three (3) years of purchase.

* Increase and extend through 2010 the residential energy credits that were recently extended for tax year 2009.

The bill would also extend the 50% bonus depreciation and increased Section 179 expensing limit and phase-out threshold through tax year 2009 and extend the net operating loss carryback period from two (2) to five (5) years for 2008 and 2009.

Just a reminder – more refundable tax credits = increased tax fraud.

So what do you think?

AS THE CONGRESS TURNS

Today’s daily CCH Tax Newsletter reports in “Stimulus Package Negotiations Nearing Completion” that Congress is considering adding the annual one-year dreaded AMT patch to the next “stimulus” package.

“Senate Finance Committee member Charles E. Schumer, D-N.Y., told reporters on January 14 that adding a one-year patch for the alternative minimum tax (AMT) to the stimulus package is still under consideration . . . Baucus acknowledged the same a day earlier, telling reporters that the AMT patch is ‘still on the table’.”

On one hand it would be good to get it over with early in the year – so we do not have to wait until the last minute as in past years.

But passing a one-year patch so early in the year means that Congress will probably not be dealing with the issue of repealing the mucking fess altogether in 2009.

Knowing Congress I suppose I should be happy to get what I can. Extending the annual fix process now is better than nothing – and better than dragging it out all year again. Hopefully Congress will seriously address the issue of repeal in 2010, which now appears will be the big year for Tax Code overhaul.

TTFN

THIS JUST IN

An update on this morning’s post –

In her post “Obama Proposes Tax Cuts: What’s In It For You?” TAXGIRL Kelly Phillips Erb tells us –

“The tax cuts that are being considered would equal $500 a year for working individuals and $1,000 for working couples. The cuts would be in the form of a payroll tax credit. That’s good news for workers because it’s an immediate benefit - no wait for IRS checks. Employers will make the adjustment during the year by reducing federal tax withholding; workers not subject to withholding will likely be able to apply for a refund at the end of the tax year. And yes, there will likely be phaseouts and caps - meaning at an as yet unmentioned income level, the credits would be reduced or not apply. Whispers are that the income level cap will be around $200,000 but don’t hold me to it.”

Way to go BO! Finally – a way to put money immediately in the hands of Americans without using tax rebate checks! It is similar to the “payroll tax holiday” that had been proposed, and about which I posted, in the past.

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This method is simple and inexpensive. The cost to the government is minimal, as the money will be distributed by employers in the form of increased take-home pay. There will be some additional work for the IRS, as I expect the Form 941 for at least the 1st Quarter of 2009 will need to he adjusted, but certainly not the excessive burden caused by last year’s rebate check program.

I trust that self-employed individuals will be allowed a similar $500 credit on the 2009 Form 1040 – so that they can reduce their quarterly estimated tax payment for the first quarter by $500.

It is touted as a “payroll tax credit”. My question is - Is it a credit against federal income tax or against actual payroll tax (FICA and self-employment tax)? I will be interested to see just how the mechanics of this credit will work, both now and on the 2009 Form 1040.

As Kelly points out, “Don’t get too excited just yet. These are just proposed cuts.” But I expect that BO will not have a major problem getting his “stimulus” package passed.

What do you think of this idea?